At a glance

Regulators and businesses can once again make joint submissions to the court proposing agreed penalties in civil penalty proceedings, after the High Court of Australia unanimously reversed a Full Federal Court decision that had held it was impermissible for parties to do so.

For regulators and the businesses they regulate, the decision provides a welcome return to the approach which had prevailed before the Full Federal Court's decision. It means that parties can negotiate settlements of civil investigations commenced by Australian regulators with greater confidence in predictability of outcomes, and in avoiding the time and cost of contested litigation.

Background

The Fair Work Building Industry Inspectorate had sought civil penalties against two unions for alleged breaches of the Building and Construction Industry Improvement Act 2005 (Cth). The unions agreed to pay penalties in agreed amounts for the alleged breaches, and the Director of the Inspectorate commenced proceedings in the Federal Court, requesting the Court to award penalties in those amounts, subject to the Court's discretion.

However, the Federal Court and then the Full Federal Court, applying the High Court's decision inBarbaro v R (2014) 253 CLR 58 (Barbaro), held that the submissions about penalties were inadmissible. In Barbaro, the High Court had held that it was impermissible for criminal prosecutors to make submissions about the sentence that should apply. The Full Federal Court in Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2015] FCAFC 59 (CFMEU) applied the same principle to civil penalty proceedings, finding that the penalty process in criminal and civil proceedings were similar in nature.

For a more detailed discussion of the Full Federal Court's decision, see our previous update here.

The High Court's decision

The High Court found that the Full Federal Court in CFMEU mistakenly conflated the task of criminal sentencing and the task of fixing civil pecuniary penalties. Civil proceedings are an adversarial contest where the scope of relief is largely framed within the choice of the parties, allowing for settlements and court-approved compromises. This is not true of criminal proceedings which are accusatorial in nature. There are also significant differences in the burden of proof, and the role of criminal prosecutors and the court in criminal proceedings as distinct from regulators and the court in civil proceedings.

The High Court also emphasised the important public policy involved in promoting predictability of outcomes in civil penalty proceedings. The previous long-standing practice of receiving and, if appropriate, accepting submissions about civil penalties was consistent with that policy, because it increased the predictability of outcome for both regulators and the regulated. It also encouraged early acknowledgement of wrongdoing and the opportunity to avoid expenditure of resources on lengthy and complex litigation.

Nor was that approach inconsistent with the court's independent discretion to fix a penalty (as the Full Federal Court had held); in every case the court needs to be satisfied that the penalty submitted is appropriate in the circumstances.

In practice

While the High Court's decision offers greater certainty of outcome, and the opportunity to avoid the costs of contested litigation, it is important to remember that a court is able to reject a penalty submission it considers inappropriate in all the circumstances. It is up to the parties to persuade the court that any jointly proposed penalty should be adopted by the court.

This means it is important that when approaching negotiations with regulators to settle civil penalty proceedings, businesses bear in mind the need to justify any penalty figure reached against the particular facts of the case. Joint submissions about penalties, and agreed statements of facts to support those submissions, need to be carefully formulated and supported by the evidence (as well as consistent with case law about penalties in equivalent circumstances). Failure to do so runs the risk that a court will not accept the submitted penalty as appropriate, and that the parties will not have achieved the certainty they sought.